Studio's offer is probably too low for Kerkorian

HOLLYWOOD — MGM shares dipped and Sony stock rose a day after reports of a possible Lion takeover by the Japanese-controlled studio, with those perfs reflecting market skepticism that a deal will be sealed any time soon.

Normally, after a takeover announcement, the buyer’s stock would decline and the targeted company’s shares would rise. That was the pattern Wednesday when news of the $5 billion Sony offer first circulated (Daily Variety, April 22).

“There’s no conclusion to be drawn here, except that this leaping into the press means MGM has informally put itself up for sale,” said David Miller, an analyst with the L.A. investment firm Sanders Morris Harris.

One problem with the studios’ talks could be price, Miller said. Sony’s effective $20-a-share cash offer is probably about $2 short of a price MGM majority owner Kirk Kerkorian would find acceptable, he estimated.

“In terms of tax considerations, Kerkorian would prefer to do a stock-based deal,” said Michael Savner of Banc of America Securities. “But regardless of cash or stock, at $21-$23 a share we think MGM would be a seller.”

MGM shares fell 17¢ to $19.58 on Thursday. Sony was up 66¢ at $42.61.

With the Sony-MGM talks characterized by sources on both sides as “preliminary,” it’s worth noting that some past prospective media mergers have hit the press with similar fanfare only to fall apart in later stages.

“Disney-Comcast will probably go down as one of the biggest head fakes on the planet, because it now looks like that deal will probably not happen,” Sanders Morris’ Miller observed.

Talks about a proposed Warner Bros.-MGM merger also failed to sustain early traction, along with several other proposed transactions involving the Lion and its massive 4,000-title movie library.

Still, observers believe even the mere possibility of a Sony-MGM combo — an on-again, off-again prospect posed this time as a Sony takeover backed by two equity firms — could prompt other studios to consider making rival offers for the Lion.

“Someone is leaking this to the press purposefully, so that other suitors will get involved and bid up a higher price,” Miller said. “I think this is just an initial bid in a long, protracted negotiation.”

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